The year hasn't been kind to healthcare stocks as weight-loss drugs, weaker Covid-related sales, and the market's fixation on tech names have taken their toll. However, income investors shouldn't lose hope just yet. There are still opportunities to invest in healthcare stocks with promising dividend growth and a healthy future.

The sheer demographics alone provide a significant boost to this sector. "These companies are cash-rich, and they are constantly focused on innovation," emphasizes Stephanie Link, chief investment strategist at Hightower Advisors. Such dedication to progress and financial stability brings hope for continued growth.

Andy Acker and Daniel Lyons of the Janus Henderson Global Life Sciences believe that "attractive valuations" and "numerous medical advances" could serve as catalysts for the sector's revival. In fact, the price-to-earnings ratio of the S&P Biotechnology Industry index is currently 25% below its 30-year average—an enticing opportunity.

Interestingly, healthcare differentiates itself from consumer staples by offering the potential for secular growth. According to Chris Senyek, chief investment strategist at Wolfe Research, the sector has a built-in advantage in this regard.

Admittedly, 2023 hasn't been a memorable year for healthcare stocks. The Health Care Select Sector SPDR exchange-traded fund has experienced a modest 2% decline, including dividends, while the S&P 500 enjoyed a 21% return. Nevertheless, Chris D'Agnes, partner at Hamlin Capital Management, believes that healthcare stocks possess defensive traits that can weather a potential recession in the coming year.

"In years when the stock market goes down, you generally want to own healthcare," advises D'Agnes. He suggests that the lack of recessionary conditions thus far in 2023 may have influenced the sector's performance.

Despite current challenges, healthcare stocks remain a beacon of hope in an unpredictable market. Their resilience, potential for growth, and dedication to innovation make them a valuable asset for income investors seeking long-term stability.

Healthcare Stocks with Growth Potential

Johnson & Johnson: A Pharma and Med Tech Powerhouse

Johnson & Johnson is a leading player in the pharmaceutical and medical technology industry. With a focus on meeting the needs of the aging baby boomer population, the company offers a range of products, including hip implants and innovative medications.

Despite a slight dip in stock value this year, trading about 10% lower, Johnson & Johnson is still an attractive investment option. The stock currently boasts a reasonable valuation of 15 times forward earnings estimates. Moreover, the company has an impressive track record of increasing dividends for 61 consecutive years. This reliability, coupled with its strong presence in both pharmaceuticals and medical devices, positions Johnson & Johnson for steady earnings and revenue growth in the foreseeable future.

AbbVie: A Resilient Player in Pharmaceutical Innovation

AbbVie emerged from Abbot Laboratories in 2012 and quickly gained prominence within the industry. Initially heavily reliant on the blockbuster drug Humira, its recent loss of patent protection posed challenges. However, AbbVie successfully countered this setback with the introduction of two newer drugs: Skyrizi and Rinvoq.

Both Skyrizi, used for treating psoriasis and Crohn's disease, and Rinvoq, effective against rheumatoid arthritis, have already achieved remarkable success. In fact, these immunology drugs generated over $1 billion in sales each during the third quarter alone. This significant revenue stream bodes well for AbbVie's future growth and profitability.

AstraZeneca: Specializing in Oncology Solutions

AstraZeneca stands out with its diverse portfolio of drugs, with particular strength in oncology treatments. Notably, the company's drug Tagrisso has proven effective for specific lung cancer types. In the first nine months of this year, AstraZeneca's cancer therapies accounted for approximately 40% of its sales, amounting to a substantial $13.5 billion. This figure represents a remarkable 20% increase compared to the previous year.

Despite potential headwinds associated with healthcare stocks during presidential election cycles, AstraZeneca remains an appealing prospect. The stock is currently trading at around 15.5 times its estimated 2024 profit consensus, as projected by industry experts.

Conclusion

The healthcare industry offers a range of exciting investment opportunities for those looking to capitalize on growth potential. Johnson & Johnson, AbbVie, and AstraZeneca stand out as prominent players within the sector. While Johnson & Johnson's solid reputation and diverse product range make it a reliable option, AbbVie's success in developing innovative drugs demonstrates its resilience. AstraZeneca's specialization in oncology positions it well for continued growth and success in the future.

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